IT and ITeS companies are finding it increasingly difficult to manage risks, owing to increased expectations from customers, a highly litigious society and the emergence of new risks. As organisations are exposed to new risks and challenges, a historical treatment may not prove adequate for dealing with current and future risk trends, says India Insure, a broking house which tracks the Indian insurance industry.
While new risks like cyber crimes are fast evolving, existing ones are growing manifold. The market is currently soft and insurances are affordable. However, with the trend of increasing claims, particularly on the health insurance front, it is likely that the market will harden over a couple of years, India Insure said.
In a recent study on the IT/ITeS industry by India Insure, it was found that close to 84% of the respondents feel their organisations are exposed to greater risks today, compared to three or four years ago. Risk has now turned into a priority as well as a boardroom issue.
Only 11% of the surveyed organisations report having created a board-level position of chief risk officer (CRO) to head risk management. Nearly 37% of the respondents feel risk management is very important for stable growth, while 63% feel it is important. Only 47% reported that they have a business continuity plan in place, while 16% said they have implemented enterprise risk management (ERM) programmes.
The survey points out that it is time for organisations to review particularly the health portfolio in view of the rising claims ratio. Insurers may soon decline taking on risks in case the claims ratio is consistently high. The survey also noted that healthcare costs are today one of the major hurdles for the industry. The costs are typically rising 2 to 3 times faster than inflation.
Long working hours, night shifts, stressful jobs and a sedentary lifestyle are now making people prone to various life-style related diseases. As costs of healthcare rise, claims on health policies also increase, leading to a vicious cycle of premium increases and high claims ratio. Nearly 62% of the industry said they spend over 70% of their annual insurance budget on the health portfolio. As an aggregate, 49% of the corporates surveyed have a claims experience exceeding 100%, with 7% of them exceeding 150%. All the surveyed corporates with employee strength of over 10,000 have experienced claims exceeding 100%, the survey added.
Liability is emerging as one of the most significant risks faced by corporations in a booming Indian economy, more so as it gets integrated with the global economy. The ever-increasing complexities of business transactions across borders and the rising use of litigation have prompted a need for liability insurance programmes which protect firms against potential lawsuits. As the threat of a recession affects the economy, a rise in insolvencies and claims seems to be inevitable. Close to 69% of the companies surveyed said they have purchased some form of liability insurance such as split over directors & officers, errors & omissions, commercial general liability and crime policies. A common trend witnessed in several countries that moved to free market pricing was the initial cut-throat competition to bag accounts and increase market share and India seems to be no exception to this.
A majority of the respondents also said they have fire insurance and electronic equipment insurance incorporated into their office package policy. Apart from providing health care coverage to employees, a majority of the large companies have also extended the coverage to the dependents of the employees, with additional costs.
Losses due to short circuit were named as major causes of claims, followed closely by theft of laptops and mobile phones. Breakdown of electrical equipment was also cited as a key factor in claim. Organisations which work towards managing risks in a holistic fashion will be in a better position to steer their organisations towards a right direction, the survey added.